In an interview to ET Now, Vijai Mantri, MD & CEO, Pramerica Mutual Fund, talks about the domestic and global factors influencing the Indian markets and the road ahead for the economy. Excerpts:

ET Now: What to your mind is the biggest concern for Indian markets, global or local? Globally growth concerns have surfaced up again, US economic data of late has been mixed and locally, brokerages are of the view that Q4 earnings this time around will disappoint us.

Vijai Mantri: This time around, concerns are not only local but international as well. International events have always been surfacing time and again and this time around, it is not different. So there is a slew of information coming in, some are positive, some are negative.

Domestically, concerns are related to policy, taxation and fiscal situation. So it is a combination of both. That is the reason that the markets are trading at these levels but our opinion is that the market, for a short term, would remain range bound but we do not see the market correcting majorly from these levels.

If some event happens, the market may go down by 5% to 7% but as on date, the margin of safety is fairly priced in the market.

ET Now: What about the FII community? Do you think when it comes to India, they are still awaiting further clarity on GAAR before taking a call on how much to deploy in Indian equities?

Vijai Mantri: International investors have so many options to invest in various countries. And then, first you have to weather the exchange risk, then you weather the particular market risk, then you have these taxation challenges.

So I do not think anybody would like to come in when there is so much confusion around these things. So foreign investors are holding themselves back, they want clarity. I do not think that they are averse to paying taxes but they want clarity. They want to know how they will be taxed and what will happen, whether these things will get taxed retrospectively etc.

So you are absolutely right, because of GAAR, there is a lot of uncertainty in the minds of foreign investors. That is the reason they are not looking at investing in India. It is also coupled with the fiscal challenges India is facing. So it is not just that one factor which drives people to invest or disinvest but a multiple of factors. Right now what is playing on top of the minds of FIIs is what is happening on the GAAR.

ET Now: Last time I interacted with you was exactly 2 weeks before the budget. Now I am interacting with you exactly 2 weeks after the budget. So in between this period, in terms of the portfolio strategy, what has changed for you?

Vijai Mantri: No, we have not changed anything dramatically. At that time, we looked at budget as one event but this time around, it was far more critical because people were expecting that the government will take some initiatives on the policy front or open up the economy. None of these things happened, unfortunately.

But we looked at budget as one of the events and not something which is by far the most important event. So our portfolio has been positioned keeping in mind what will happen post budget. So we assume that in April-May, the interest rates in the economy will go down and that is the reason we went overweight on banking and capital goods and industrials and we remain the same. We have not changed our portfolio post budget.

ET Now: What about spaces like gas utilities, which were a hot favourite amongst investors as well as traders? Do you think because of the regulatory risks, perhaps you could see significant downturn and as a class, they would be now a clear underweight?

Vijai Mantri: You are absolutely right. This is one sector people wanted to own because it is very closely related to the consumer as well as infrastructure in some sense. So people were owning it and it was a telecom kind of a story, where the companies were doing very well and the government was also helping these companies to put the businesses and infrastructure in place.

Now we have these regulatory challenges on pricing. So it has taken some people by surprise but it is very important to keep in mind that whenever the valuations hit a high, the companies are making too much profit, these challenges in India would come by and you will see some sobering of people's liking of these stocks for the time being.

When the valuations go down to reasonable levels and then people expect a certain kind of growth these companies are going to achieve with the new pricing, you will see investor interest coming back in these stocks but not right now.

ET Now: So at a time when global growth concerns are surfacing up again, would you avoid sectors or companies which have a global exposure, like IT, metals and financials?